If you choose to file for a chapter 7 bankruptcy then you are taking the liquidation route. The majority of your assets must be sold and the money given to your creditors. On the other hand if you choose to file for chapter 13 bankruptcy then you are choosing to go with the adjustment of debts (also known as reorganization). In this instance, you do not have to relinquish your assets but you do have to make enough money in order to satisfy a monthly payment arrangement whereby you will be expected to pay back all or most of your debts over a period of three to five years.
Both the chapter 7 and 13 bankruptcies have their own sets of rules and exceptions. Here we take a look at both kinds of bankruptcies which are the most common throughout the United States.
Chapter 7 Bankruptcy
Both individuals and businesses are permitted to file for chapter 7 bankruptcies in the United States. In most cases, this type of bankruptcy takes place over a period of three to six months. Some of your assets will need to be sold in order to pay off a portion of your debts. Anything that is deemed exempt based on state or federal laws you will be able to keep. This could be anything from your old car to your computer to your clothes and household items. The less you have, the less you will have to give up. What you will get for doing this is that your unsecured debts will be written off.
Some secured debts are erased with a chapter 7 bankruptcy but most are not. If you have a secured debt such as a car loan you have three choices- you can let the car be repossessed; you can continue to make your regular payments if it is permitted, or you can make a lump sum payment to the creditor. Please note that if you make enough money to afford a repayment plan under a chapter 13 bankruptcy then you will not be permitted to apply for chapter 7 bankruptcy.
Chapter 13 Bankruptcy
A chapter 13 bankruptcy has many different names but one of the most common is the wage earner bankruptcy. It is called this because your income must be high enough to make it possible for you to make monthly payments to creditors over a specified number of years.
When you file for this type of bankruptcy, as the debtor you must propose a plan to make payments that would work for both yourself and your creditors. The plan must be one that will be stretched over a period of three to five years. The minimum amount of money that you will be required to pay back will be contingent upon how much you presently owe as well as how much money you earn. Another thing the court will consider is the amount of money your creditors would have gotten from you if you had filed for a chapter 7 bankruptcy instead.
There are debt limits when it comes to a chapter 13 bankruptcy. The debts you owe must be within a certain limit according to the federal government in order for you to qualify. Your secured debt cannot exceed $1,010,650 while your unsecured debt cannot be any more than $336,900.